Prompt Monthly Update – June 2021
The strategy can best be described as global tactical asset allocation across six core asset classes. An audio summary of this update, as well as other recordings, can be found on SoundCloud via the following link.
Provided below are current and historical monthly allocations for 2021:
- U.S. Large-Cap Equities: 14%
- U.S. Small-Cap Equities: 10%
- International Developed Equities: 23%
- Emerging Market Equities: 8%
- Precious Metals: 23%
- U.S. Treasuries: 22%
This strategy is designed to provide objective allocative signals on a monthly basis as economic circumstances change, the output of which will be reflected via tactical rebalances on the first trading day of each month. Provided below is a brief summary of each sub-strategy and our most recent quantitative insights:
Absolute Return
Absolute Return is meant to serve as a binary pendulum between U.S. Large-Cap Equities and U.S. Treasuries – combining complimentary variables such as momentum, correlation, and risk-adjusted performance to determine the relative attractiveness of equity vs. non-equity asset classes. While this sub-strategy typically maintains a noticeable equity tilt, the equity allocation has gradually declined from 78% to 22% since March. This shift in risk appetite can be attributed to declining equity momentum at the expense of greater volatility – a trend that is readily visible when looking at a price chart of the S&P 500. This month’s equity allocation of 22% marks the lowest since April of last year – something we will certainly be monitoring as this sub-strategy tends to perform best during bearish periods.
Risk Parity
Risk Parity is intended to serve as an anchor for the combined portfolio, leveraging inverse volatility contributions to achieve equitable risk contributions across each asset class. The sub-strategy’s slight equity tilt (approx. 60%) currently remains intact as is usually the case, but Risk Parity is very similar to Absolute Return in that it serves as insurance for the portfolio should bearish sentiment unexpectedly prevail.
Trend
Trend leverages momentum differentials to establish time-varying support and resistance levels across each core asset class, decomposing market trends to provide leading indicators of relative valuation and subsequent price performance. This model will result in the most significant allocative swings as it is designed to be the most agile of the three sub-strategies – constantly monitoring trends for risk of breakage and opportunity for breakout. Allocations tend to remain heavily weighted towards equities and have been so since the brief market correction in October of last year, but two interesting trends have emerged this month that may in fact reinforce the bearish undertones of Absolute Return:
- The allocation to Emerging Market Equities has been significantly reduced in favor of International Developed Equities – perhaps illustrating a rotation away from more speculative economies.
- The allocation to US-Large Cap Equities has been cut by more than two-thirds in favor of Precious Metals – another indication of potential opportunities in non-equity assets.
These three models run in concert via programmatic weighting schemes, resulting in an overall equity tilt of approximately 55% for the month of June – reflecting the strategy’s most conservative positioning in over a year. While this may be indicative of risk on the horizon, we understand that ‘time in the market’ is far more effective than ‘timing the market’; hence why our program is designed to keep you continuously allocated across all market cycles.
Disclaimer: This document may contain forward-looking statements and projections that are based on our current beliefs and assumptions and on information currently available that we believe to be reasonable. All statements that are not historical facts are forward-looking statements, including any statements that relate to future market conditions, results, operations, strategies or other future conditions or developments and any statements regarding objectives, opportunities, positioning or prospects. Forward-looking statements are necessarily based upon speculation, expectations, estimates and assumptions that are inherently unreliable and subject to significant business, economic and competitive uncertainties and contingencies, and prospective investors may not put undue reliance on any of these statements. Forward-looking statements are not a promise or guaranty about future events.
It should not be assumed that recommendations made in the future will be profitable or will equal the performance stated herein. The information provided does not constitute investment advice and is not an offering of or a solicitation to buy or sell any security, product, service or fund, including the fund being advertised.
The statements herein are not intended to be complete or final and are qualified in their entirety by reference to the Investment Management Agreement. In the event that the descriptions or terms described herein are inconsistent with or contrary to the descriptions in or terms of the Investment Management Agreement, the Investment Management Agreement shall control. In making an investment decision, you must rely on your own examination of the Investment Management Agreement.